Funding Alternatives for Startups

By Fernando Berrocal

Getting funding isn't always a simple process, especially if you're the owner of a brand new business. Typically, borrowers face large barriers when approaching traditional banks and financial organizations. They want to see years of experience, stable income, and outstanding credit scores, all of which most startups lack. Thankfully, not all is lost. To fund your startup, you still have a lot of unique funding alternatives. You'll just have to think outside the box.

Funding Alternatives for Startups

Creative financing options for new businesses:

Bootstrapping: When you use your own money or reinvest initial sales to fund your business, this is known as self-financing. While bootstrapping your business reduces liability, it also slows growth. For example, saving your cash to start a startup might take years. A business loan, otherwise, may provide you with that money in less than a week. When you bootstrap, on the other hand, you keep entire control of your business and don't have to worry about loan payments or collateral.

Family and Friends: It's always possible to borrow money from friends and family. To minimize misunderstandings, you'll need to specify the parameters of the agreement upfront (is this going to be a loan or a donation). While it may seem unusual to ask a familiar or friend to sign a contract, a legal agreement is an excellent approach for both parties to set expectations. One of the cheapest and most common means of business financing accessible to new entrepreneurs is to borrow money from them: According to a poll conducted by the Kauffman Foundation, they account for more than 40% of startup funding. However, this form of finance may jeopardize your relationships.

Startup Competitions: To get startup capital, enter a competition and pitch your business concept. You'll be competing against other outstanding ideas, but it's a great chance to get funding. Plus, even if you don't win, you'll improve your pitching abilities, work out your business plan, and maybe meet like-minded entrepreneurs and venture investors.  At almost any time of year, you may discover startup contests in various locations throughout the world. 

Pinterest and UberConference are just a few of the successful startups that have won startup competitions. If a bank doesn't believe in your concept, the startup community may, and if they do, there's a strong possibility they'll back you up with a large amount of money.

Accelerators: Startup Accelerators help you establish your startup by providing seed money, mentoring, networking, and other services. They'll ask for stock in exchange for investment, so it won't be free money but it will be zero-cost capital to help you get started. Accelerators have a vested interest in your organization's growth since they are effectively investors in it. They want to help you expand your business with all the financial assistance and mentoring they can because when you succeed, they prosper as well.  Accelerator programs of the highest caliber (such as Y Combinator and others) are highly competitive. Acceptance rates might be as low as 1%, so you'll need to bring your A-game.

Financing Alternatives for a Startup

Grants: Small business loans and grants are frequently discussed as if they are on the same scale. They aren't. A lender allows you to borrow money in the form of a loan, which you must repay (with interest). A grant provider will offer you money with no interest and no need to repay it. Grants are extremely competitive since they give free financing to businesses. Who doesn't want some free cash? To have a chance of obtaining a grant, you'll need to create top-notch applications, especially if it's for a large sum of money.

You can't just spend grant money on whatever you want. These are given out by federal and state organizations, municipal governments, and private businesses based on stringent criteria and use cases. The money will almost always have to be used for very specific business purposes.

Angel Investing and Venture Capital (VC): Angel investors and VC's can help startups raise significant funds. They frequently provide mentorship, networking, and cooperation opportunities, too.  VC's funding, otherwise, isn't free money. You'll have to sell your organization's stock. That may appear to be a minor expense today, but if you make it big, it might be far more costly than a loan. Loans are repaid, but equity costs you a portion of your business for the rest of your life.  It's also possible that you'll lose ownership of the business. You distribute decision-making to more individuals when you give up equity. That may be a wonderful thing for your future business, but it may not be the best option for you personally.

Crowdfunding: This is a method for entrepreneurs to raise funds from the general population. You may approach hundreds of thousands of people for modest investments instead of asking a VC or bank for a significant sum of money. Many businesses have benefited greatly from crowdsourcing campaigns on sites such as Kickstarter. They're good sites for finding supporters, but keep in mind that you'll have to pay a part of your revenue to these platforms.

Crowdfunding allows you to acquire funds and advertise your business without taking on debt or giving up ownership. You could already have an audience waiting for your product or service by the time you're fully funded. Keep in mind, though, that even crowdfunding isn't always free money: in exchange for their investment, your audience will likely want backer benefits, notoriety, and a future product.


Ready to bring your startup to the next level? Apply to MassLight’s next batch. MassLight supplies capital and a dedicated tech team. We take equity in return. Have questions? Refer to our FAQ page.

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